A pointless distinction in corporate insolvency

In the 19th century, where much corporate insolvency law thinking still remains, a distinction was made between court ordered liquidations on the one hand, and creditors’ voluntary liquidations (CVLs), both solvent and insolvent, on the other.

An accident of insolvency history, as an early edition of Ford says, though perpetuated for over 100 years.

The more logical approach in personal insolvency of making no relevant distinction [except obviously for the processes leading up] was disregarded.

The distinction remains even in the UK, where the law requires the Official Receiver to investigate court windings up, but not CVLs. The odd rationale seems to be that CVLs are matters between the company and its creditors – as to which, some might say all the more reason to provide for their scrutiny.

While the Australian Insolvency Law Reform Act 2016 removed most of the distinctions between the two, the law still requires asset and liability statements [ROCAPs] to be filed with the court for court liquidations, but not for CVLs, nor for bankruptcy.

SPG Projects was in a CVL following a voluntary administration. Fabian Gleeson J refused to accede to a creditor’s application to again have the company wound up, this time by the court, the Judge noting that

‘there is little practical difference between a creditor’s voluntary winding up and the form of winding up imposed by the Court’.

The barrister for the creditor could only argue

‘that a court-ordered winding up would put beyond doubt any dispute as to the circumstances of the second meeting of creditors of the company on 30 January 2020 which resolved to wind up the company’.

and that the liquidator, perhaps unhelpfully, made no comment.

The Judge saw no doubt and the liquidator’s lack of response went nowhere.

In the matter of SPG Projects Pty Ltd (in liq) [2020] NSWSC 34.

On a related note

On a related note, well over 90% of all liquidations in Australia return no dividends to creditors …..

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